Hybridan Small Cap Wrap featuring Sea Energy and Hutchison China MedTech

This week: SeaEnergy awaits the winds of change, Hutchison China MedTech fortifies its position and Filtronic looks vulnerable.

Brainjuicer Group Plc (BJU 145p / £18.75m)

Brainjuicer, the provider of innovative market research techniques, last week gave a trading update. It said that revenue from the Group's strategically important 'Juicy' products made significant gains in 2009 and now accounts for over 60 per cent of the Group's revenue (2008: 46 per cent). These products are being sold to some of the world's largest buyers of market research. In 2009 the Company's clients included 11 of the world's top 20 buyers of market research, up from 9 in 2008, and revenue from these clients grew by over 70 per cent. Client satisfaction remains high with repeat business at around 80 per cent.

The revenue increase was driven by continued strong progress in the US, growing at around 60 per cent, and by encouraging contributions from the new offices in Switzerland and Germany. (The Company's UK business recovered after a slow start to the year). Overall the Group achieved approximately 26 per cent revenue growth (21 per cent on a constant currency basis). The operating profit is up by more than 25 per cent whilst having at the same time invested more than ever before in developing and validating products, in back- office operations and in the Company's software platform.

John Kearon, CEO of BrainJuicer, commented: "The Board is confident that in 2010 we can continue to grow our business through further product innovation and increasing our market share with major multinational customers." Brainjuicer’s business model, despite market research being a tough area over the past 12 months, would appear to be a no-brainer.

Dhais (DHAP.PL 29.5p / £16.8m)

This PLUS quoted and Cardiff based UK leader in the marketing and retailing of hearing and mobility products, last week announced that it had purchased back 2,545,454 Ordinary shares at an aggregate price of £700,000 from Steven Wilkinson.

In June 2009, the Company announced the acquisition of the Hearsavers business from Hearsavers Limited, a hearing aid company in administration. Steve Wilkinson a director of Hearsavers Limited was appointed a director of the Company’s subsidiary Hearing Health and Mobility Ltd and subscribed for 2,545,454 Ordinary Shares in the Company at a subscription price of £0.275 per share. The payment for these shares was by way of an unsecured interest free loan from the Company. The loan was repayable immediately on the sale of these shares.

The Company had an option to acquire all the shares back from Steve Wilkinson if he ceased to be employed by HHML, and in late 2009 Mr Wilkinson left the Group to pursue other interests. The repurchase of the shares was transacted at the subscription price of £0.275 per share and the loan repaid simultaneously leaving the Company's cash reserves intact.

The company has grown by acquiring retail businesses and has also diversified its marketing role into other consumer health related areas. DHAIS operates, via its subsidiary Hearing Health and Mobility Ltd, a chain of 21 retail outlets in Hearing and Mobility located throughout the UK.

Earthport Plc (EPO 13p/£11.51m)

Four weeks ago we reported that with scepticism that a franchise fee of £3.25m owed to Earthport, the inter bank payments specialist, by a mysterious South American company called Zink Financial had got bogged down in, yes, the inter bank payments system. The latest twist in this sorry saga is that Earthport’s CEO has suddenly resigned presumably because the “constructive dialogue” Earhport has reported it has entered into with Zink isn’t quite so constructive. We await to see if the company’s Nominated Adviser hangs around as it appears the company’s recent newsflow has caused confusion in the market, at the very least.

Filtronic (33p/£24.5m)

Filtronic, the supplier of microwave radio equipment used to connect mobile phone base stations, has reported its half year results to 30 November 2009. Revenues from continuing operations were about half 2009 levels at £9.6m (H1 2009: £18.3m) and operating profit before exceptional items were £0.3m (H1 2009: £1.8m) due to the major OEM’s struggling to get credit for capex and the delay of 3G licenses in India, being the company’s biggest market. Nevertheless, despite a tough trading environment, the balance sheet remained strong with net cash at £16.3m (H1 2009: £15.8m) because of working capital efficiencies. The company has a market leading position and is expanding into new segments following the lapse of restrictive covenants given at the time of its disposal of its base station business three years ago. However, the lack of visibility of short term newsflow to drive the share price bodes ill for share price appreciation making the stock venerable, in our view, to an opportunistic private equity bid.

Hutchison China Meditech (HCM 196.5p / £100.76m)

This low-risk, high-reward specialty pharma, otherwise known as Chi-Med, after a jump in its share price in November 2009 when it announced its successful global Phase IIb ulcerative colitis trial for HMPL-004, has done well over the last 3 months. Last week Chi- Med announced that a further three of its drugs, under its joint venture Hutchison Whampoa Guangzhou Baiyunshan Chinese Medicine Company Limited, have been included as Type B drugs in the 2009 edition of the Medicines Catalogue announced by the Ministry of Human Resources and Social Security in China (NMC) in late 2009.

The NMC lists the drugs to which patients are entitled reimbursement under the national basic medical insurance, labour injury insurance and child birth insurance systems in China. The last national medicines catalogue was issued in late 2004. Most of the drugs included in the NMC are generic drugs that are manufactured by multiple manufacturers in China. Inclusion in the NMC, while certain to lead to increased distribution and consumption, does not necessarily guarantee reimbursement in all provinces across China, as provinces are allowed some limited flexibility at a local level to select which Type B drugs are reimbursed.

The three additional drugs are Kou Yang Qing granules (periodontitis), Nao Xin Qing tablets (central nervous system/cardiovascular) and Dan Hong Hua Yu oral liquid (ophthalmology). Sales of these three drugs in the first half of 2009 totalled $2.9m, or about 6 per cent of the sales of prescription and over-the-counter drugs of Chi-Med's China Healthcare Division. Their inclusion in the NMC raises the total percentage of the China Healthcare Division's sales of prescription and OTC drugs in the NMC from 88 per cent to over 94 per cent.

We believe that an expanded position in the NMC can only broaden sales through reimbursement for Chi-Med’s drugs and should help the Company’s strong growth to continue.

Judges Capital (JDG 137.5p / £5.6m)

Judges, the scientific instrument maker, gave further colour on current trading following the trading update given in December for FY2009. Then analysts adjusted their EPS forecasts EPS from 23.0p to 26.0p and now the company has confirmed that the result is likely to be at the 'top end' of these revised expectations. Good news indeed, combined with an indication of strong cash generation. In the December trading update management expressed some caution on the level of the outstanding order book at that time going into FY2010 following some exceptionally strong trading and order flows in parts of FY2008 and FY2009. Judges currently trades of a FY2010F P/E ratio multiple of just 4.8x making this look like a good buying opportunity.

SeaEnergy (SEA 60p/£40.85m)

Off shore wind play SeaEnergy PLC (previously Ramco Energy PLC) broke out of its trading range a few weeks ago and ran up to the mid-80’s, with the announcement that it had been awarded acreage by The Crown Estate (Zone 1) to develop offshore wind farms in the Moray Firth, Scotland, next to SeaEnergy’s existing Beatrice site, with an approximate installed capacity of 1.3GW, as part of the UK Round 3 awards.

The SOCAR issue – State Oil Company of the Azerbaijan Republic - was creating somewhat of an overhang, and this was also this year settled for $4.9m in SEA’s favour. In our opinion, there is nothing to stop this company going global given the caliber of its team and management, which is very much international in its experience, and given its recent announcements, its share price should be taking off! We do not therefore understand SEA’s share price reaction given the good news it has released; it can only be described as frustrating for investors and management alike.

Last week’s announcement that it had issued 149,000 new ordinary shares at a price of 60p per share, in satisfaction of deferred pension contributions for 2008 and 2009, due to Steve Remp, is clear evidence that the Company’s chairman is also of the view that that SEA is undervalued. Following the issue of these shares, the beneficial interests of Steve Remp is 8.5 per cent of the Company, evidence that with this only pure play offshore wind Company listed on AIM, management and investors interested are aligned.

Sareum Hldgs Plc (SAR 0.4p / £5.06m)*

Specialist cancer drug discovery company, Sareum, with oncology-focused development and commercialisation company Cancer Research Technology Limited and The Institute of Cancer Research, last week stated that it had successfully developed novel chemical compounds that increase the effectiveness of current cancer therapeutics, an example of which is published in the latest edition of the journal of Molecular Cancer Therapeutics.
These compounds originate from the Checkpoint Kinase 1 Inhibitor joint research collaboration between the ICR, Sareum and CRT. CHK1 is a key component of a biochemical pathway responsible for reducing the effectiveness of traditional cancer therapeutics such as chemotherapy. The collaboration has developed novel, potent and selective CHK1 inhibitors that, in combination with cancer chemotherapeutics gemcitabine (Gemzar) or irinotecan (Campto), significantly reduce tumour growth in preclinical models when compared to the chemotherapeutic alone.

The ICR, Sareum and CRT are encouraged that the significant recent progress made by the collaboration has been published in a peer-reviewed scientific journal and believe this will assist in discussions with potential licensing partners. Sareum's CEO, Dr Tim Mitchell, said: "This publication exemplifies the success of the collaboration and the quality of research by the scientists involved. I look forward to discussing these latest advances with potential licensing partners."

Sareum is developing seven early-stage cancer drug programmes, Chk-1 is ready for licensing and two are close to licensing. Major pharmaceuticals groups have a well-known need to build their cancer drug pipelines and to bring drugs to market quickly. We believe Sareum can be expected to react even more positively to any good news, particularly were the company to sign a deal.

Statpro Group (SOG, 102p /£61.9m)

StatPro, the provider of portfolio analytics and data solutions for the global asset management industry, reported that trading for the year ended 31 December 2009, was in line with market expectations of PBT of £6.5m and EPS of 8.8p. Net debt has been reduced significantly to £8.9m at 30 December 2009 (2008: £14.6m). New business generation remains strong, but the company reported that renewal rates have fallen, but still about 90 per cent as M&A activity increases in the asset management industry. The average length of contracts has increased to 20 months (2008: 16 months), providing even greater visibility. The stock stands on a 2010 P/E of 10.7x and falling to 9.6x in 2011. At the current share price this is not particularly cheap but the stock has strong management, high earnings and cash visibility and good growth prospects so we’re expecting further share price appreciation.

Surgical Innovations Group (SUN 2.0p/£7.7m)

We commented a while ago that maybe one of the reasons for Surgical Innovations’ undervaluation was the scepticism surrounding the company’s ability to get traction in the US market with its laparoscopic tools and instruments. We ventured to say that we thought it would be just a matter of time before they would be able to crack that market open. It seems like that time is now. Surgical announced last week that starting in February, their US distribution arm will start supplying one of the country’s largest Group Purchasing Organisations with its “Resposable” laparoscopic instruments. This gives Surgical access to more than 2,200 hospitals in the US and circumvents the direct sales access route where existing supplier relationships have proved to be almost impenetrable. We will be watching in anticipation to see the results from this clever approach to overcome this obstacle that has held the company back from selling its innovative and cost effective instruments in a market worth more than $150 million a year.

Theo-fennell (TFL 48p/ £9.0m)

Theo Fennel, the up market jeweler, has reported strong trading in the Christmas period, 1 December to 24 December 2009 with life for like retail sales up 25 per cent driven by a focus on selling new one off products. A decent performance in H2 has seen like for like sales up 9 per cent on the prior year for the first 9 months to 31 December 2009. Adverse weather conditions in January 2010 have impacted sales and the group now anticipates a marginal loss for the year ending 31 March 2010, versus market expectations of PBT of £0.1m and EPS of 0.5p. The shares were steady on this news. A ruby in the dust?

*A corporate client of Hybridan LLP